Compass Group

Compass Group provides catering services to a wide range of institutions, including large companies, hospitals, schools, universities and sports arenas. It operates in more than 55,000 locations in over 50 countries and serves over five billion meals a year.

Engagement objectives:Strategy, risk and communication - Food safety

Background

Several high-profile fraud incidents have struck the food sector in recent years. According to the Food Fraud Initiative MSU, food fraud costs the global food industry $40 billion each year.

In 2013, a number of retailers, major manufacturers and foodservice operators found that some of their products inadvertently contained horsemeat. Although not directly affected, Compass did retrospectively identify a mislabelling incident in relation to a supplied product that it had previously withdrawn from its Irish supply chain.

Our engagement

We commenced engagement with the company in 2015. One of our objectives was to ensure that the company could demonstrate effective food safety policies and control processes to avoid the recurrence of a similar scandal. We had conversations on a number of occasions with the company’s director of health, safety and environment and with the head of supply chain integrity. We also met the former chair of the corporate responsibility committee to request that the company report on the progress it has made.

In a strategic-update conference call in November 2016, we gained some assurances that the board would consider adding new board directors with international experience to the top executive level. We had another constructive discussion about the role of the existing independent directors and suggested ways in which they could prove that they represent the long-term interests of minority shareholders. We requested more evidence that the independent directors are working to influence the board and hold its executives to account.

Changes at the company

Following the horse meat scandal, the company made significant improvements to the management of its food supply chain, such as the inclusion of a food safety incident rate measure in its executive bonus scheme.

In 2015, it launched a new version of its global supply chain integrity standards to make it more resilient to food fraud. This included an increased focus on horizon-scanning for new and emerging risks, supplier mapping and the routine testing of products. In 2017, the company conducted a gap analysis on the implementation of these standards with action plans to address any shortfalls in its operations in individual countries. In 2018, following discussions with us regarding the importance for the company to ensure awareness of the speak-up channel in its supply chain, Compass reviewed its supplier code.

Food fraud involves sophisticated criminal activity, which is why, in addition to strong company actions, cross-industry collaboration is required. As reported in its 2017 CSR report, Compass has demonstrated leadership on food fraud by being a founding member of an initiative on food integrity – the Food Industry Intelligence Network – through which UK food businesses share intelligence by submitting anonymous data on product testing.

The EU Food Fraud Network reported 775 cases of suspected fraud in 2017, a significant jump from 243 in 2016. Therefore, we will continue to engage with the company on the level of control and visibility over its supply chain. Potential solutions include more sophisticated supplier mapping, supply chain assurance, as well as food tracking and detection systems, including the use of blockchain technology.

Case studies are shown to demonstrate engagement, EOS does not make any investment recommendations and the information is not an offer to buy or sell securities.

Pauline Lecoursonnois

Sector lead: Consumer Goods

Pauline Lecoursonnois engages with companies in the UK, France, Switzerland, the Netherlands and Australia with a focus on consumer goods & retail, financial services, pharmaceuticals and utilities sectors. Prior to joining EOS, she worked as a research analyst at Institutional Shareholder Services, focussing on governance matters, and as a research assistant at the Universities Superannuation Scheme and for the ESG sell-side research team of Natixis. Pauline holds a Master’s in Management & Sustainable Development from Sherbrooke University and the ESCEM School of Business and Management. She speaks French and has a good working knowledge of Spanish.